Newfoundland, Inc

Essay

Newfoundland, Inc., has a branch in Boston. On April 1, 2006, the accounting records of the home office of Newfoundland had a ledger account, Allowance for Overvaluation of Inventories: Boston Branch, with a credit balance of $36,600. During April, merchandise costing $110,000 was shipped to the Boston Branch and billed at 20% above home office cost. The branch reported a net income of $9,600 for April, and branch inventories on April 30 were $162,000 at billed prices.
a. Prepare a working paper to compute the cost of the branch inventories on April 1, 2006, assuming a uniform markup on all shipments of merchandise to the branch.
b. Prepare a home office journal entry to adjust the Allowance for Overvaluation of Inventories: Boston Branch ledger account on April 30, 2006.